Greetings, Agents of Impact!
Signals: Ahead of the Curve
Climate reality bites equity and bond investors with PG&E ’s bankruptcy. Staid and stable utilities have long been viewed as safe investments. Climate change has disrupted that assumption, at least in California, where PG&E indicated it would seek bankruptcy protection by the end of the month. The utility may be liable for more than $30 billion in damages from wildfires in 2017 and 2018. The company’s stock has slid from more than $48 a share in early November to barely $7 yesterday; more ominously, the company said it wouldn’t make interest payments due Wednesday on bonds maturing in 2040. Bank of America Merrill Lynch said more than $17 billion of PG&E bonds face default, which would vault PG&E into the ranks of Lehman Bros. and WorldCom on the list of largest investment-grade defaults.
The company, and former CEO Geisha Williams, have argued the company is a victim of what it calls “climate-driven extreme weather,” which likely made the state’s fires hotter and more destructive. The New York Times cited energy experts who said PG&E’s bankruptcy is “one of the first major financial casualties from climate change — and far from the last.” Under California law, PG&E is liable for fire damages caused by its equipment; the state legislature granted some relief after last year’s fires but is considered unlikely to do so again.
- Shareholders are likely to get wiped out. The largest institutional holders of PG&E’s shares, as of last August, were Blackrock (9.4%), Vanguard (7.3%) and State Street (4.8%). Bondholders also expect losses.
- Climate disruption. “There’s a long list of those at risk, including farmers, homebuilders and insurers,” Bloomberg reported. An Entergy Corp. unit in New Orleans declared bankruptcy after Hurricane Katrina. Hurricane Harvey in Houston helped do in ExGen Texas Power. More recently, California regulators took control after claims from the Camp Fire overwhelmed Merced Property and Casualty Co.
- PG&E’s use of climate change to argue for reduced liability “marks a reversal of the typical trend, in which plaintiffs use climate change to seek damages from large corporations,” notes Pacific Standard.
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Dealflow: Follow the Money
WhereIsMyTransport raises $1.85 million to map transit in emerging market cities. In African cities, motorcycles, communal taxis and other informal modes of transit make up 80% of commuter trips. WhereIsMyTransport aims to improve city life by mapping formal and informal modes of transport so passengers can plan their trips and city governments and non-governmental organizations can improve coordination. The South African open data company has mapped 30 cities, including most major cities in southern Africa and several in India and Latin America. WhereIsMyTransport raised $1.85 million in a Series A funding round from mobility-focused Liil Ventures and Goodwell, an Africa-focused impact investor that has backed the company through three rounds of funding. Read more.
FinLab selects five startups targeting financial wellbeing in the U.S. workplace. More than half of employees are financially stressed. The Financial Solutions Lab challenge, an annual startup competition from the Center for Financial Services Innovation and JPMorgan Chase, targeted its latest cohort on startups improving financial health for underserved workers in the workplace. Among the winners: San Francisco-based HoneyBee, a startup that gives people access to their paycheck a week early in order to build credit and manage unplanned expenses. Onward, a short-term emergency savings platform, helps workers build financial literacy. Tune in.
Signals: Ahead of the Curve
Impact-linked financial rewards help high-impact companies attract growth capital. Companies that hit impact milestones can reap a range of rewards aimed at making them more investable. For example, Clínicas del Azúcar, a network of low-cost diabetes clinics in Mexico, increased the ratio of low-income clients it served from 31% to 36% and improved blood-sugar levels. The firm, which was paid $134,000 by the Swiss development agency, says the incentives have helped it raise $1.5 million in equity from impact investors.
Such impact-linked finance schemes, detailed in a new report from Germany impact consultancy Roots of Impact and Boston Consulting Group, aim to nudge ventures towards greater impact by helping them attract the financing they need to scale. In some cases, it is the investors themselves that provide incentives such as lower-cost capital. UBS Optimus Foundation will lower interest payments on a “Social Success Note” to Impact Water if impact targets are met. And Beneficial Returns has agreed to waive the final payments on loans to Sistema Biobolsa and Iluméxico in Mexico if the firms achieve their stated impact goals. The schemes are different from social-impact or development-impact bonds, which pay out to investors when impact goals are met. Impact-linked financing rewards companies directly.
- Financial rewards. Incentives can take the form of direct payments or preferential financing terms when impact targets are hit and verified. In an earlier report, Roots of Impact detailed a half-dozen such instruments that could help scale up off-grid clean energy, including guarantees that scale up with an enterprise’s expected impact performance.
- Tests to watch. Roots of Impact is testing its Social Impact Incentives model at Village Infrastructure Angels, a solar-agtech company in Honduras, and Peruvian enterprise Inka Moss, which helps local moss harvesters access international markets.
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Agents of Impact: Follow the Talent
Big Society Capital is hiring an investment director and investment manager in London… Bethnal Green Ventures is recruiting a head of portfolio and other positions in London… There’s still time to register for Transform Finance’s webinar, “Deep Democratization of Capital with The Boston Ujima Project,” today at 1pm ET/10am PT (see, “Boston is a growing hub of global – and local – impact investing”)… Applications are open for Techstars Impact’s 2019 program for tech teams solving social and environmental challenges… Yunus&Youth is accepting applications for its fellowship program for social entrepreneurs.
— January 16, 2019.